|John A. Singer
Mona Sedky Spivack
Attorneys for Plaintiff
Federal Trade Commission
6th & Pennsylvania Ave. NW
Washington, DC 20580
UNITED STATES DISTRICT COURT
FEDERAL TRADE COMMISSION,
THOMAS MAHER, DORIAN REED, AUDREY REED, and INTERNET BUSINESS BROADCASTING, INC., a Nevada corporation,
COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF
Plaintiff, the Federal Trade Commission ("FTC" or "the Commission"), for its complaint alleges:
1. The FTC brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, to secure permanent injunctive relief, rescission of contracts, restitution, disgorgement, and other equitable relief for defendants' violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC's Trade Regulation Rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" ("Franchise Rule"), 16 C.F.R. Part 436.
JURISDICTION AND VENUE
2. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a) and 1345, and 15 U.S.C. §§ 53(b) and 57b.
3. Venue in the United States District Court for the District of Maryland, Northern Division, is proper under 28 U.S.C. §§ 1391(b) and (c), and 15 U.S.C. § 53(b).
4. Plaintiff, FTC, is an independent agency of the United States Government created by statute. 15 U.S.C. §§ 41 et seq. The FTC is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce, as well as enforcement of the Franchise Rule, 16 C.F.R. Part 436. The FTC is authorized to initiate federal district court proceedings to enjoin violations of the FTC Act in order to secure such equitable relief as may be appropriate in each case, and to obtain consumer redress. 15 U.S.C. §§ 53(b) and 57b.
5. Defendant THOMAS MAHER is an officer, director, manager, or principal owner of the corporate defendant. He has portrayed himself as president of corporate defendant INTERNET BUSINESS BROADCASTING, INC., dba INTERNET BUSINESS BUREAU, INC. and dba INTERACTIVE CONSULTING SYSTEMS, INC. ("IBB"). At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled or participated in the deceptive acts and practices set forth in this complaint. He has transacted business in the District of Maryland.
6. Defendant DORIAN REED is a principal telemarketer of the corporate defendant. He has at various times portrayed himself as the "Marketing Advisor" of corporate defendant IBB. At all times material to this complaint, acting alone or in concert with others, he has participated in the deceptive acts and practices set forth in this complaint. He has transacted business in the District of Maryland.
7. Defendant AUDREY REED is an officer, director, manager, or principal owner of the corporate defendant. She has at various times portrayed herself as the president of corporate defendant IBB. At all times material to this complaint, acting alone or in concert with others, she has formulated, directed, controlled or participated in the deceptive acts and practices set forth in this complaint. She has transacted business in the District of Maryland.
8. Defendant INTERNET BUSINESS BROADCASTING, INC., dba INTERNET BUSINESS BUREAU, INC. and dba INTERACTIVE CONSULTING SYSTEMS, INC., ("IBB") is incorporated in Nevada and has been qualified by the California Secretary of State to conduct business in California. IBB has or has had its principal place of business at 10300 Fourth Street, Suite 200, Rancho Cucamonga, California. IBB has transacted business in the District of Maryland.
9. Collectively or individually, defendants THOMAS MAHER, DORIAN REED, AUDREY REED, and IBB have conducted business as IBB.COM and on the Internet as "www.ibb.com."
10. At all times material to this complaint, the defendants have maintained a substantial course of trade, in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.
DEFENDANTS BUSINESS ACTIVITIES
11. The defendants have been engaged in a common course of conduct designed to sell business opportunities to consumers for substantial sums. Specifically, the defendants have sold to investors Internet "billboards" or "banners," which purportedly consist of multiple slots of classified or yellow page advertising space that appear in the Internet newspapers that the defendants purported to operate on web sites located on the World Wide Web (or "Web"). For an additional fee, the defendants have also purported to secure advertisers to sublease the billboard space from the consumer, collect the rental income earned, and disburse it (minus their management fee) to the consumers.
12. The defendants have induced potential purchasers to invest in the business opportunity by sending "spam," or unsolicited advertisements as electronic mail via the Internet. The defendants' electronic mail advertisements have included income guarantees. For example, in one such advertisement, the defendants have promised that "monthly income with Internet billboards [is] guaranteed," that the defendants' "business opportunity offers a solid return potential of 100.8% the first year with only a 25% occupancy rate," and that the defendants "guarantee a 25% occupancy rate . . . ." The advertisement further directs consumers to contact the defendants' home page, located on the Web at "www.ibb.com," and/or to call their toll-free telephone number.
13. At their home page, the defendants have further stressed the income guarantee. Pursuant to their so-called "Media/Occupancy Guarantee," which is set forth in their "Master Lease" on their home page, the defendants have promised that, if the consumer hires IBB to act as the "managing agent" of his billboard, IBB "guarantees as the Lease Manager to achieve a twenty-five percent (25%) occupancy rate within six months following the media start up period." The defendants have further represented that "[f]ailure of IBB to produce a 25% occupancy rate within the specified time period or reasonable proof of advertising shall entitle the Master Leaseholder to recover 100% of the lease price paid . . . ."
14. Consumers who have called the toll-free telephone number contained in the defendants' electronic mail advertisements and/or on their home page, have received a sales pitch from the defendants' telemarketers. Through these sales pitches, the defendants' telemarketers, including defendant DORIAN REED, have further induced the consumer into buying a business opportunity by representing the amount of money the consumer can reasonably expect to earn. The telemarketers have been under the direct control and supervision of individual defendants THOMAS MAHER, DORIAN REED, and AUDREY REED.
VIOLATIONS OF SECTION 5 OF THE FTC ACT
15. In the course of offering for sale and selling their Internet billboard business opportunities, the defendants have represented, expressly or by implication:
16. In truth and in fact:
17. Therefore, the defendants representations as set forth in Paragraph 15 are false and misleading and constitute deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
VIOLATIONS OF THE FRANCHISE RULE
18. The business ventures sold by the defendants are franchises, as "franchise" is defined in Section § 436.2(a) of the Franchise Rule, 16 C.F.R. 436.2(a).
19. In the course of offering for sale or selling franchises, the defendants have provided, or represented they will provide, significant assistance to the purchasers in the purchasers method of operation.
20. The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure statement containing twenty categories of information, including information about the history of the franchisor, the terms and conditions under which the franchise operates, as well as the names and addresses of other franchisees. 16 C.F.R. §§ 436.1(a)(1)-(20). Disclosure of this information enables a prospective franchisee to assess any potential risks involved in the purchase of the franchise.
21. The Franchise Rule additionally requires that the franchisor provide to prospective franchisees a document containing information substantiating any oral, written, or visual earnings or profit representations it makes to a prospective franchisee. 16 C.F.R. §§ 436.1(b)-(e).
22. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), and 16 C.F.R. § 436.1, violations of the Franchise Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
23. In numerous instances, in connection with the offering and promotion of franchises, as "franchise" is defined in the Franchise Rule, 16 C.F.R. § 436.2(a), defendants THOMAS MAHER, AUDREY REED, and IBB have:
24. Consumers in many areas of the United States have suffered substantial monetary loss as a result of defendants' unlawful acts or practices. Absent equitable relief by this Court, defendants are likely to continue to injure consumers and harm the public interest.
THIS COURT'S POWER TO GRANT RELIEF
25. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to grant equitable relief, including injunctive relief, redress, disgorgement and restitution, to prevent and remedy any violations of any provision of law enforced by the FTC.
26. Section 19 of the FTC Act, 15 U.S.C. § 57b, authorizes this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants' violations of the Franchise Rule, including the rescission and reformation of contracts, and the refund of money.
27. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by the defendants' law violations.
PRAYER FOR RELIEF
WHEREFORE, plaintiff requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, and pursuant to its own equitable powers: